The three questions of global importance

By Chrystia Freeland

June 21, 2012

Tolstoy may have been right about families – “All happy families are alike; each unhappy family is unhappy in its own way” – but the opposite of his famous first line is true when it comes to countries: The world’s disparate unhappy nations are very much alike when it comes to the causes of their unhappiness.

That’s not immediately apparent – austerity-strangled Greece, cheap-money America and military-ruled Egypt are all exhibiting quite different symptoms. But it is no accident that so many of the world’s economies are sputtering at the same time, or that so many people around the globe are angry.

One reason for the synchronized gloom, of course, is the synchronization of the global economy. But the world is suffering from more than a shared summer cold. Rather, we are all, both together and apart, trying to figure out three big questions. Our answers to them will shape the 21st century.

The first is how nation-states fit into a globalized world economy. Different countries are wrestling with different versions of this problem. Small states with their own currencies and open trade policies have just endured a version of the Asian crisis of 1998, and they have come to similar conclusions – survival requires a fortresslike national balance sheet and export-led growth. That’s why Baltic leaders, these days, sound an awful lot like Southeast Asian ones.

The rub, as Lawrence H. Summers, the former U.S. Treasury secretary, likes to point out, is that there are no Martians. Export-led growth can’t work as a policy for the whole world: Someone needs to be the net importer.

The truth of this observation is being experienced very painfully today by south Europeans, whose economies are constrained not only by inflexible labor markets – which are being reformed – but also by a currency union that has lifted north European exporters, particularly Germans, and weakened everyone else. And so the euro, which was attractive to smaller European states in part as a shelter from global economic storms like the Asian tsunami of 1998, turns out to be a perilous haven indeed.

An effective global economy will require more than a World Trade Organization and free and fair commerce between companies. What shapes trade most of all is currencies, and those are guided by national policies on exports, credit and government surpluses or deficits. If we want a global economy – and most of us seem to – we need to devise a way for the currencies of the world to work, and to work together. Call it the 21st century’s Bretton Woods moment.

The second question is even knottier. Global capitalism is the best economic system humanity has devised so far: Worldwide growth in the three decades before the financial crisis was astonishing – delivering, most strikingly, a huge rise in incomes to poor people in countries like India and China that, just a generation ago, development economists had all but given up on. Latin America has benefited, too, and even Africa, the perpetual bridesmaid, seems to be on the rise.

But 21st-century capitalism is failing at one very important task – delivering jobs and rising incomes to the middle class in rich countries. U.S. families are no better off today than they were in 1992. For ordinary Americans, it is as if the post-Cold War windfall and the technology boom never happened. Much of Europe is in the same fix, only worse, with even higher unemployment rates and a less forgiving mortgage default system. From today’s vantage point, the rise of European tigers like Iceland, Ireland and Spain feels like a mirage.

A popular meme in Western societies at the moment is to lament the mulish unwillingness of democratic majorities to support sober, centrist political leaders. Much of this refusal to follow the erstwhile wise men can surely be traced to the failure of the policies of the past few decades to deliver for the middle class.

This shortchanging has been going on for some time. If it seems new, that is because the easy money of the pre-2008 world economy hid a multitude of sins: In the United States, the middle class thought it was rich because of cheap consumer credit; in southern Europe, the middle class thought it was rich because of state jobs, state pensions and state services funded by cheap sovereign credit. Now all that credit has dried up.

As Lord Paddy Ashdown told a gathering of top Canadian civil servants in Ottawa this week: “You alienate the middle class at your peril. The middle class always leads revolutions.”

The third question is the one we speak about the least and should probably worry about the most – can rich women be persuaded to have children? Rich, here, doesn’t refer to the wives of the plutocrats, who continue to have plenty. But once a country achieves middle-income status, its middle-class women stop having many children. This demographic squeeze is another big contributor to Europe’s malaise. On current trends, it is likely to become more severe.

As countries, as middle-class individuals and as families (or as women who choose not to have them), we are struggling to find our place in a world that is in the midst of convulsive change. Lord Ashdown said that some eras are times of stability. Ours is not: “We are living in a period of history when power shifts.”

The global family of nations will be unhappy until we find a new power configuration that works. The good news – and the bad news – is that we will only be able to figure that out together. “Everything today is connected to everything else,” Lord Ashdown said. “The most important part of what you can do is what you can do with others. There is no problem anymore that is solvable alone.”

I don’t see much mystery here at all. For many, many years the United States has had HUGE advantages. Ours was the economy helped (as opposed to destroyed) by WW I and II. OUR economy was much like those privileged to have their own personal well-stocked fishing hole. Globalization tore down the fences, and guess what? There are LESS FISH for US as a direct result of others enjoying an associated improvement in opportunity and circumstance.

America is a concerned nation but not an unhappy one. Our standard of living is among the highest in the world, and will remain so for the foreseeable future. Is not everyone in the world better off that the Chinese now make and sell things others need and want when not so long ago all they made was munitions for war and conquest?

Yes, global capitalism is the best economic system humanity has devised so far. That said I fail to see why anyone expects it to “deliver jobs and rising incomes to the middle class in rich countries. Is it not to be expected that as the U.S. loses it’s prior advantages over the rest of the world that the gap between respective incomes narrow?

You ask “can rich women be persuaded to have children?” Silly question. Being rich means an individual has choices, and children are NOT an intelligent choice in societies where each new child is an economic disadvantage.

At a time that the human population has blown through SEVEN BILLION, and nears the “tipping point” into an ecology that has never existed before, isn’t it time to work out an economic “plan” for the very near future (and beyond) that is not based on more and more people (chasing fewer and fewer per capita finite resources)?

If space is to be the “final frontier” for humanity, why are not all nations who would participate united in funding that with reasonable priority? That looks to me like the best “thing to do with others”.

It no secret on how the middle class can have jobs in nation X. Nation X has to export. To do that have export subsidies it worked for Hitler before WWII. Do every thing to encourage competitiveness trust busting of firms larger than economic scale. Encourage merger of the the firms that are smaller. Tax inheritance to pay for the export subsidies and Education.

Our societies are failing to progress because it is largely based on a single minded kind of materialism. We believe that the future of mankind stems from economic prosperity and scientific advancement only. This is despite the fact the a back of a cigarette pack calculation tells us there is not enough resources, labour and capital for all 8 billion of us to be middle class. We will continue on the path until such time as we change our way of thinking. Change to what? Well, history is full of times when the way of thinking changed to a more advanced one. However, it always a symptom of the times that the backwards thinking rejects the new way of thinking until the new thinking wipes it out. So what is the new thinking I refer to? It is a kind of thinking that asks “What is the impact of what I do for all of mankind for all of time”. It is only when most people individually choose in freedom to think this way will we find a way forward. Until then it will be civil uprisings, income disparities, unemployment, recessions and war.

The natural drive and honor of civilized people are to be self-sufficient for themselves and their dependents. Economic freedom is fundamental for achieving self-sufficiency and prosperity.

The obscure political power taxing people destroys economic freedom and divides communities; because it is always abused by minority self-interests and breeds conflicts, protests and revolutions.

Tax is any economic value surrendered to political force. Tax abuse includes: quick riches for power abusers; favors for family and friends; useless services; illegal tax used for protected and untaxed corruption; discriminatory tax collections; many kinds and ever increasing taxes; selective voter handouts for clinging to corruptive power; oppressive and costly laws; huge living costs enforced with profits and tax of state directed and uncompetitive business.

Tax abuse makes it impossible for anyone to calculate what total tax is; or to collect all taxes and ensure that tax abusers and everyone pay their fair tax share. The unknown total tax on the masses must be far more than what they earn. That forces people into excessive debt even for basic living costs and worsens poverty.

Self-interest driven tax abuse is unstoppable. So stop its source, the obscure political power taxing people. Total tax freedom is the one and only solution. Then everybody knows tax is exactly nil.

With their hard earned money totally tax free, all people can afford competitive goods and services, insurance cover for possible loss and savings for old age. And they may freely contribute for community needs and minimal competent public duties. That leaves no reason to tax people, except for abuse.

In contrast to destructive tax abuse, global and local free enterprise excels in providing all possible human needs: productive jobs and fair pay, affordable goods and services, infrastructure, new technologies and products, capital markets; etc. Many start as small business, the worldwide champion job creator.

Empower people with economic and total tax freedom to create winning nations. It cures tax abuse (100%), unemployment and poverty. All peoples unite to end outdated tax slavery. Do not vote otherwise!

“As Lord Paddy Ashdown told a gathering of top Canadian civil servants in Ottawa this week: “You alienate the middle class at your peril. The middle class always leads revolutions.””

Er,…no, not at all!

There was NO middle class in Tsarist Russia of 1917. There was NO middle class in nascent America in 1776. Only France in 1789 has been named a *middle-class* revolution, but by Marxists who believe in a pure *class* system.

Reading Simon Schama’s “Citizens” gives a different reading.

As a result, most of these revolutions are, of course, NOT middle-class led.

Simple solution to all world problems. Create a spaceship from the comic books, and tell the world “we are not alone” and that the aliens want our precious resources and our women.
We need a common enemy. Really, I’ll bet it would work.

The real solution I think is time and patience.
Excellent article Chrystia, you are truly an open mind and can see the forest thru the trees.

“But 21st-century capitalism is failing at one very important task – delivering jobs…”

One issue is that ‘capitalism’ is not limited to the arbitrary boundaries of state. Human mobility is. Until we can be politically, socially, economically, and culturally free enough to follow the ‘jobs’, then there will be vast inequities to the people stuck in any particular region at any particular point in time.

“Global capitalism is the best economic system humanity has devised so far.”

You said it right there. ‘So far’. Capitalism is not a religion that requires adherence, it is a behavior that can be studied and it is a behavior subject to evolution. Evolution is good, there are yet things even better to emerge. If we let it.

It’s about time somebody recognizes that globalization is not working for the middle class in rich countries. The “free trade is good” meme has been repeated by credible experts so many times than everyone believed it.

Now, what is the U.S. going to do about its $650 billion goods trade deficit? Some old-school protectionism should be in the works, as this is bankrupting us.

Out of the thousands of influences of importance to this world’s economy, these three are the most important?

Okay, I’ll bit, just for the exercise.
You dropped the term plutocracy, but failed to link its existence to the decline of the middle class in the United States, inexorably increasing in extreme income disparity for over forty years.
Capitalism? Do you mean Crony Capitalism? Capitalism means that competing entities live or die based on the influences of a “free market”. Where do trillion-dollar bailouts to “too-big-to-fail” “banks” fit in with capitalism?

I’ll pick one overriding influence: globalization. It’s not a “choice”, but a process that is entrenched in the increasingly connected global population of homo sapiens.

The BIG question is: When will the United States prepare itself to be a, or the, leading participant in globalization. Most American corporations have already made the choice. They’ll participate with or without American labor. 53% of GE’s labor force is foreign (and growing). More than 90% of Apple’s labor force is in Asia. Is this the direction we want to follow?

The world is running out of money, which means that the standard of living will equalize. Every notch lower in the west will unfortunately cause violence between the privileged and the not privileged. The answer in the past has been religion – be poor and gain rewards in heaven (while the aristocracy smirked). But people are getting smart. Religion is an opiate. (Who said that?) But wait! What if there is a legitimate re-evaluation of what makes one happy? Think about it. The U.S. is one of the unhappiest nations on earth, yet arguably the richest. What creates happiness and contentment? It can’t be yachts and gold. It can’t be endless experiences. Been there done that. It must be something else, something that lasts beyond the collapse of our childish religions. Think about it.

I can’t help but thinking that the rich women not having babies phenomenom is a positive sign for humanity and the planet. If we focus on eliminating poverty, we will also reduce the world’s population. Of course, old-school capitalists hate the concept of fewer potential consumers.

It is indeed interesting to hear that all countries must help each other globally. Fine words that mean absolutely nothing economically. To accept this rather insipid argument assumes, rather simplistically, that all countries are good economic pals with each other. Oh I really don’t think so.

The Kissinger Report(1974) defined America’s real past empire strategies and economic intent — protect all global resources and dependencies for only America by whatever corrupt means available. Shortly afterwards was born the Washington Consensus(1978) — a specific body or a set of rules to join economic clubs like the WTO, IMF and World Bank. These WC policies, at the time, were loudly touted in the media as good for the rest of the world when, in actual fact, such WC policies truly suppressed, hindered and even wrecked the development of many emerging economies.

But the Washington Consensus, along with Bretton Woods, is now firmly in the trash bin. China, within the last 4 years, has been very busy totally ignoring the US Dollar, employing myriad swaps all around the world with significant countries like India, The ASEAN Nations, Middle East, Japan and Russia. The latest this week is a currency swap worth $30 billion between China and Brazil. Japan and China have also just opened up their forex markets to each other — totally excluding the trade dollar in their intermediary trades.

Is anybody awake?

Are these outcomes good examples of working together globally for the good of all or is this just deserved payback for the US’s past vampire policies wreaked upon the rest of the world?

What’s more, every government’s primary mandate to their citzens is, above all else and first and foremost, to protect their country’s own economy at all costs. Period. America’s past global empire behaviours are a prime and extreme example of these economic misbehaviours and I’m afraid it ain’t gonna change anytime soon.

The problem in the U.S. is that we turned to a total and complete inexperienced “AMATEUR”, at least that’s what President Clinton calls him. And rather than focusing like a laser on the economy, jobs, and debt he decided to go on the most massive corrupt wasted spending spree in the history of the world. He really believed, and still believes, that massive growth in Governnment, massive debt, and insanity like Solyndra are the solution to everything. Obama doesn’t appear to be insane, so he has to be blinded by his exteme left wing ideology. The U.S. still has time to save itself, just barely, if we reject Obama and his failed policies in Nov. If Obama is reelected our nation will remain on the path of Greece, and Obama will push us into permanent and irreversible decline!

The synchronization of the global economy and its failure to provide a stable, sustainable financial environment is leading to a tipping point.(The lack of multiple offspring, while a nice feminist aside,is a secondary issue of no immediate concern).The lack of markets, arising from the lack of middle-class spending and the drying up of credit,is putting the lie to the promise of prosperity made by the proponents of world-wide financial interconnection.In fact,the proponents have ignored that the financial industry’s ravenous greed has placed the Bretton Woods system on life support.
The international financial system is on the brink of failure.All attempts by the Euro partners to solve their financial challenges have been can-kicking exercises to buy time for their political leaders.What is needed,and what will not happen,is for the European nations to give up sovereignty to a central financial authority.The idea that twenty-odd countries,(who ninety-two years ago began a thirty year war against each other that still causes distrust), will willingly concede that authority is ludicrous.
And if can-kicking works for a time, then an unexpected expansion of the Mid-East war,or an unexpected natural disaster,or a pandemic could easilly trigger a collapse of the system.Or perhaps it will simply be that the web-connected community of peoples who have been misled by their leaders will tear it down.
We are living not just in a time when power is shifting, but in one in which the shifts are sudden and likely to be violent.

Is capitalism designed primarily to deliver jobs? I don’t think so, especially if one factor of production, technology, is consistently improving. The mistake of the middle class, whether in the U.S. or in Europe, was to replace the pursuit of income earning, wealth producing capital with settling on short cuts like credit, conspicuous consumption, state jobs, and employer-sponsored pensions. We have, in short, de-clawed ourselves…

I believe that the author asked “can rich women be persuaded to have children” because right now poor women have too many children. These children often grow up poor and have poor skills that can only handle basic jobs.

These jobs are few because there are not enough rich people to generate these jobs. Fewer jobs, more workers, lower wages, result is poorer and poorer bottom.

In other words, since we don’t want to persuade the bottom to breed less, we will have to fix the increasing inequality by making the top breed more. That’s one way to fix “the bottom outbreeds the top”. Which I believe is the primary reason why inequality is getting worse.

If we don’t fix that then no matter what government, what policy what economic system, there will be more fighting for the bottom jobs, squeezing welfare budget.

It will lead to more inequality, more deficit. This is just simple logic. It is simply inevitable consequence.

I myself agree that making the top breed more is a benevolent way to fix inequality. However, we simply have too much of a strain of natural resources now. We simply have to face the tough choice, that is to convince and educate the mass better.

For starter, I propose making “The Marching Morons” by Cyril M. Kornbluth a required reading at every school. Hopefully, that hint will somehow awake them.

How about three other big issues:
● Globalization: Is the American public onboard with American corporations that will find their labor here or there?
● American Plutocracy
● The shrinking Middle Class?

I fear the middle class is a thing of the past, though it will be some time to reduce middle class government workers, because politicians make poor bosses and find it difficult to negotiate with the Labor bosses they get re-election campaign funds from. The Global economy has started to level out. Oil Refineries closing in the U.S. and moving to Mexico and South America for lower wages
and the EPA regulations are pushing them out.
It is time for the individual to think and be creative, every product has a value.

The questions rehearsed in this argument point out a single elementary datum: that all human economy (and by ‘economy’ I mean a system of beliefs derived from the finite nature of the human condition) is a zero-sum game, an unending engagement with the simple fact that we cannot have our cake and eat it. Whilst every comment made so far addresses DIRECTLY, each in its own way, this condition, the article does not. There is an underlying implication that somehow these questions will have a resolution that will overcome finitude and perhaps once and for all. As if this was an option. Isn’t the most serious danger of the present historical situation precisely the illusion rehearsed in this article (one amongst numerous trapped in this vicious conceptual circle) of a possibility of overcoming the finite nature of the human condition? Does the author have a serious programme that might respond to the questions posed?

The US dollar has no intrinsic value of its own. Although it does not have any real, tangible value, what makes it the global currency is its global demand. It is mostly motivated by the confidence reposed in the US economy by consumers. What if this global perception of the US changes? What if the dollar loses its sheen and the nations’ confidence level in its stability comes down? Things may take an ugly turn for the US.

Soon after World War II, the dollar gained importance as the currency for trade and commerce globally. What underpinned and led the dollar to global prominence was the world’s perception of the US as the superpower, with a strong, consistent and stable economy. This perception of power and stability infused confidence in individuals and nations.

What most analysts and writers do not seem to comprehend or overlook is how in the recent past, China held talks with Argentina, Malaysia, South Korea, Belarus and Indonesia for currency swap deals for trading purposes. Its objective was to help these countries to conduct trade with China without relying on the US dollar. Reportedly, similar arrangements are underway with Brazil and Russia. Although these efforts may have slowed down on account of the ongoing financial downturn in the EU, undoubtedly the euro, despite many questioning its survival, will emerge as the most dominant currency eclipsing the dollar. This will happen once a realignment of the EU takes place and the bloc becomes smaller and more manageable.

As the wheels of progress grind to a stop, the common man looks around and says “how did we get here?” The changes have been drastic and sudden, but not unforseen if you know where to look. Certain groups have the stated goal of manipulating the direction that humanity takes, and their methods seem to be effective. Redistribution of wealth into the hands of a few, use that wealth to dictate to entire nations what they will do or won’t do. When Dwight Eisenhower left office he warned of the dangers of allowing the military industrial complex to run unchecked. At that time he had no way of knowing that banking would join their ranks to become an entity that viewed as a whole is nearly unstoppable. So what is the goal? Continued advancement of the human race with technology at it’s core. Technology allows the elimination of large work forces to acclomplish a given goal, and is the real reason for the decline of the middle class. The end result is that a technoligically advanced civilation will need to be much smaller to prevent conflict and resource depletion. Moving into space won’t feed anybody, so until we learn to traverse the distances that space presents, home will stay right here. As a species our instintcs haven’t left us, we just haven’t used them for so long we don’t recognize trouble when we sense it and these days the trouble is unseen (by design). Political leaders are just a fixaton point for the masses. They hold no real power, as Greece is realizing. So, what’s my point? The powers that be are orchestrating a new renissance with themselves as the leaders of a new lineage of humanity. The last renissance followed a large depopulation caused by disease and climatic conditions. This one will be preceded by a depopulation brought on by war and possibly disease as well. There is another path, but only if people choose it, and you must be aware of the choices in the first place. Know where you stand, question everything using common sense, and choose what world your grandchildren will live in. The choices we make today, will effect their future.

The middle-class has been intentionally shrunk and attacked due to their historical threat to the ruling elite. Monies must be furtively redistributed from the middle-class to the ruling-class. This expected behavior by the elite is demonstrated in every policy that they favor. The West’s middle-class was the only group which had the intellect, capacity, and sagacity to challenge the elite’s rule. Regrettably, the middle-class accepted the propaganda of Globalism and its “benefits” hook, line, and sinker. However, in actuality, the only “benefits” gained were debt-based.

I am continually amazed that, in 2012, people who purport to be looking at the big picture (in pretty much ANY field) can completely fail to even have a passing thought about climate change, resource depletion, and environmental devastation. Mass consumption is all that the capitalist system can provide us (and not all that well as we have seen). True, the American middle class is not exactly wallowing in material deprivation, but I believe the true reason for all the anger is that the past thirty years have seen a resurgence of the captialist system, with a concurrent dessimation of the social safety net. Thus, more cheap crap is really not making us happy nor is it giving us any confidence in our leadership, when it is accompanied by reduced educational opportunities, reduced access to health care, and reduced income security in old age. Capitalism was not the system that delivered these services; the New Deal did.

Capitalism can serve some purposes, but what the world needs right now is a lot less capitalism and a lot more forward thinking. As BidnisMan points out, the world cannot provide the material standard of living to everyone that is currently enjoyed by the middle class in the west. As we also know, material posessions beyond basic needs does not make us happy. So we need a system that can deliver the basics of food, clothing, and shelter to everyone (given the world’s productive capacity, it is immoral not to do so). And then this system must focus on delivering the non-material “goods” that can make life much more enjoyable than “stuff” — good education, health care, and income security in old age. These services do much less damage to the environment than the smartest phone, and yet improve our quality of life immensely.

You say “…since we don’t want to persuade the bottom to breed less, we will have to fix the increasing inequality by making the top breed more.”

Your opinion seems limited by your personal perspective. Why is it not equally effective to give serious consideration to changing what our government does today?

We pay poor people “by the head” to stay home (in subsidized housing) and conceive MORE poor people. Our hospitals can’t turn women in labor away, and those children (including “crack babies, etc) are an ever-increasing percentage of our public school enrollment.

“Our” educational establishment responds by continuing to “dumb down” curriculum so an “acceptable” graduate with skill levels ever-increasingly inadequate to the needs of modern society. Why do we continue doing the same things that have brought America too where it is and expect different results? No one thinks any more, and there are WAY too many votes cast by the freeloaders of our society.

Author Profile

Chrystia Freeland is the Managing Director and Editor, Consumer News at Thomson Reuters. Prior, she was U.S. managing editor of the Financial Times. Before that, Freeland was deputy editor of the Financial Time, in London, editor of the FT’s Weekend edition, editor of FT.com, U.K. News editor, Moscow bureau chief and Eastern Europe correspondent. From 1999 to 2001, Freeland served as deputy editor of The Globe and Mail, Canada’s national newspaper. Freeland began her career working as a stringer in Ukraine, writing for the FT, The Washington Post and The Economist.
She is the author of two books—Plutocrats: The Rise of ...